According to experts, oil prices may stabilise below USD 70 per barrel in the coming months as markets respond to interest rate cuts, election-related uncertainty in the United States, and the possibility of OPEC production increases by 2024 end.
However, what impact is lower oil likely on GCC stock markets?
Although analysis following last month’s global market selloff that followed the unwinding of the yen carry trade suggested that a GCC stock market meltdown could happen if oil prices dropped below USD 70 per barrel, another perspective holds that markets, especially those in the UAE and Saudi Arabia, do not now correlate as closely to the price of oil as they once did.
Because oil is a significant export, there is still some correlation between oil prices and stock markets in the Gulf region, according to chief market analyst Arun Leslie John of Century Financial.
However, it is not as strong as it is sometimes depicted to be or as strong as it was five to six years ago.
Brent crude trended lower from its July 2024 peak above USD 84 per barrel, according to LSEG data. However, the Dubai Financial Market (DFM), Abu Dhabi Securities Exchange (ADX), and Saudi Arabian Stock Market Tadawul indexes all trade above levels.
By the end of 2023, the non-oil sector in the UAE is expected to contribute 74.3% of the country’s GDP, according to government data; in Saudi Arabia, the non-oil sector is expected to contribute 50% of GDP.
“The UAE has an especially strong non-oil sector, and it is growing at a rapid pace,” John said, adding that diversification means that regional markets may not feel that much of an impact from a falling oil price.
Hurricane Francine has raised oil prices after hitting a three-year low, according to Mohamed Hashad, Chief Market Strategist at Noor Capital.
Positive news about the United States’ demand also played a role in the rally. Following Hurricane Francine’s forced platform evacuations, which caused output disruptions in the Gulf of Mexico, oil prices increased.